tv Bloomberg West Bloomberg September 21, 2014 3:00pm-4:01pm EDT
♪ >> live from san francisco, welcome to "bloomberg west" where we cover innovation technology and the future of business. alibaba gaining more than 38%. also setting a record as the largest u.s. ipo ever. what is the future of the company? i have an interview with jack ma. huge lines around the world
awaited the arrival of the apple iphone 6 and 6 plus. in many locations, the 6 plus completely sold out. we will look at supply concerns and whether the large iphones could cannibalize the ipad. oracle has been billions on acquisitions and has seen modest gains in revenue. now that larry ellison has stepped down we look into the challenges the co-ceo's will face as they try to adapt into the cloud age. first, to the lead. a historic day on the new york stock exchange as alibaba group started trading in the largest initial public offering in u.s. history. trading began two hours and 23 minutes after the stock exchange opened and when it did shares were a hot item. over 100 million trades were reported in the first 10 minutes alone. shares nearly hit $100 before closing at $93.89.
it is sitting on a market cap greater than $231 billion larger than amazon and ebay combined. also bigger than facebook already. what do you make of the giganticness of that market cap? i just made that up. >> it is interesting that the market digested it so well. from the market machination perspective the ability of the new york stock exchange and the specialist system that the new york stock exchange runs, the ability of goldman sachs to pull this off is apparently an amazing thing. they had a lot of scrutiny at
the time. i remember when oakley went public. they chose the ticker oo. all the tickets were written and people spent hours trying to figure out if they were zeros or o's. people spent hours trying to figure out the questionable traits afterwards. the market was able to tolerate this without plummeting to be able to sell every thing else to be able to buy so much alibaba. >> does this put alibaba into context, you have apple the most viable tech company and google and alibaba. it is worth more than facebook and amazon and ebay combined. it's worth more than oracle. what does that say about the business? >> i think it says more about the investors. the business itself, the revenues and profits are less than all those companies you list on any metric. what it says that the investors right now today and the numbers can change is the investors think because it is chinese and
internet and because it has been well sold by the investment banks and the charismatic ceo, he is an incredible story and great salesperson. he convinced people he can sell ice to eskimos. it is an amazing story. right now the investors in that deal think that the growth can reignite. the growth has slowed down and slowed down considerably. that can reignite and if this company can grow into the valuation they are giving it today. >> we will have a discussion about what does alibaba do with the capital it has raised, what does alibaba do over the next several years to live up to this valuation but what do they do in the next week? >> what happens to the employees because it is a distraction. the payoff they have worked some years for by taking smaller salaries and stock option risks
seems like it is closer. they might not be able to sell it but at least they own it but in the case of alibaba it is a little bit different. i do not think we have the broad ownership of employees and it might not have the same distracting effect but the goal is to pretend like the ipo never happened. to use whatever financial leeway they have more of today and go on with doing the things that can make the company grow faster and make more money because they're going to have to keep the stock price where it is. >> cory johnson, our editor at large. much more about alibaba to come. its blockbuster debut has propelled the founder to the top of the chinese rich list. we spoke about the past, present, and future. i asked him about what he would say to people who doubted this would become this big. >> everyone should have a dream. what if that dream comes true? i believed 15 years ago that internet would change china, it that it would improve the world,
whether you believe or not, whether we will succeed or not. but somebody will succeed. if you do not keep working hard and working every day, nobody has the chance. i never know if we will be here today. >> what will you do with this capital? will you buy yahoo!? >> well, i do not know whether they would sell. [laughter] >> would you consider it? >> the important thing is we want to build up the company, not the buying company. we want to make sure that our ecosystem has the small guys. anything that can help small business grow we will consider. >> have you spoken with marissa mayer? what have you spoken about? >> we talked a couple months ago and yesterday she sent a nice e-mail with congratulations.
>> what are the challenges of being a global company and dealing with the chinese government? >> being a global company dealing with any government is difficult. it is a great opportunity if you deal with the government well and to make it with them, listen to their problems and solve their problems, that is why we survived. always try to stay in love with the government but do not marry them. making sure that you solve the problem they want to solve. >> u.s. expansion, you have said it is important. when will we see this expand? >> we already started helping a lot of small businesses in the u.s. in california, we are selling american cherries and we are selling alaskan seafood. we are not coming here to
compete. we are coming here to help a lot of small business which i think a lot of things need to be done. it is not a competition. >> someone suggested a joint merger with amazon. will that ever happen? >> oh, really? i heard about it from you. that would be interesting. anything, anybody involved in helping small business, we will be excited. >> you have a lot of u.s. companies trying to expand in china, yet ceo's are trying to get a leg up there. what kind of mistakes are they making? >> every market if it is the market economy you have to make sure you have the entrepreneurs, not only the professional managers. try to make your customer happy. instead of making your boss happy. have patience and have the time to do that. what we want to do is we want to help a lot of the small guys because big guys are already in china.
small guys need help like us and that is what we are excited about. >> alibaba is successful because it is so diverse and sprawling. what kinds of business ideas have you said no to? >> i am saying no to a lot of ideas because as the ceo i have to say no to opportunities because if i say yes i will get 5000 opportunities every day. everything is based on the mission. helping doing business easier. if it is on that, we will consider. if someone says we will make a lot of money, i am not interested. >> you stepped down as ceo a couple years ago and you are now executive chairman. are you still the ceo? >> no, i am the chairman. i focus my time on developing people and government relationships with all the nations that are helping small business and focus my time on expansion. i do not do this kind of operation work. >> what is your next surprise? >> it is coming. >> how will you celebrate?
>> we had a big dinner last night and everybody cried and we said 15 years we never knew, who are the people we should thank? it is not us. we thank the customers. that is why we put the young people there. we believe after 15 years the purpose of working hard as we want to make these people successful because when they are successful our success is a result. >> my interview with alibaba's chairman and co-founder jack ma. coming up, how much of an impact will alibaba have another tech companies looking to go public? can the company keep up with the hype and continue to grow? that is next on "bloomberg west." ♪
alibaba's big debut on the new york stock exchange. shares soared, priced at $60 apiece. alibaba raised a u.s. record, $21.8 billion in the offering. joining me is paul kedrosky, our bloomberg contributing editor, cory johnson, our editor at large. what will it do with all this new cash? our guest is with us from san diego. we heard about how jack ma feels. it does not sound like he is in to buy in yahoo!, but they are making strategic investments. what do you expect it will do with all this money? >> i cannot imagine how they will not be going out and aggressively acquiring. there has not been organic growth. it has also been acquisitions and an incredible number of acquisitions. give them more cash and a fairly liquid stock, it is hard to
imagine how they can do otherwise. if you look at get their track record they will be health or a field they stray in terms of dealing with acquisitions and then you look at the deal they did, it has been written about a lot. it is not clear how they benefit and we will have to watch for those transactions as well. >> cory, where do you think they put this cash to use? >> they should buy all the companies that paul has invested in. that is the perfect way to start. go right to the sk ventures portfolio. >> i have one of them. drones may be. >> one of them will be good. if not all of them. including the drones. we can expect them to put cash back to work and then the question is open.
do they make acquisition in the states and take those -- take those back to china or do they double down in some of the other things they have got going or in other places? china has terrific investments in africa and that is a place where innovation is touching down in a lot of mobile areas and they might want to have some focus there. india also a very interesting place. they could have some natural advantages. to paul's point, there is a lot of interval companies that jack ma owns 90% of. so important that alibaba had to list them in the prospectus. he is not just the richest man in china today but will be for a long time to come. >> he is open to a joint venture. what did you make of that? >> i think you caught him by surprise. he did not some might that is
something -- maybe he is a great actor but he sounded like that was something they did not give a lot of thought to. i put more credence in what cory was saying. back to my basis that this is a big mix of general electric and chipotle. you take the alibaba model and you bring it to markets. that is places like africa and it is well-suited. it is much less well-suited to partnering with advanced companies in north american markets. >> what you think investors and the public will want to see if they are to succeed in the united states? >> the u.s. is a little bit of a red herring. i know they talked about it and we know that jack ma has a special affinity for this country but when you look at the numbers, international business as a percentage of revenues has gone from well over 20% three years ago to just 9% in the quarter they just reported in.
it is a trailing year. take out the seasonality. international is a smaller part of business every single quarter for alibaba. it has been a very consistent trend. that is because china is growing so fast for them but the notion that they will be a big player in the u.s. is to look in the wrong place for where they are growing and is likely to grow in the near if not far future. >> is that how it should be, paul? should international become a smaller portion of their business? he is saying that they want to focus internationally. obviously there is growth to be
had in china, but there is growth to be had everywhere. >> yeah, but the alibaba project is an interesting experiment. things that do not happen much in tech. growth by geography. geography has dominated this. it is like sub-bullets. i do not have my powerpoint in front of me. those are the strategies to watch. china will swamp everything else but in the long run you will see the geographic pickup but it will not be in the u.s. >> all right, paul kedrosky, our bloomberg contributing editor, cory johnson, our editor at large. we are continuing to talk about alibaba throughout the show. one of the biggest winners in the ipo was softbank, alibaba's biggest shareholder. coming up my interview with ceo masayoshi son talking about what he thinks is in alibaba's future. ♪
>> i am emily chang. welcome back to "bloomberg west." the biggest shareholder in alibaba is japan's softbank, the same company that bought sprint last year. the company owns 32.4% of alibaba and made the decision not to sell any of its stake. i had a chance to speak with softbank ceo masayoshi son about why he made the long trip to new york for today. >> this is a historic moment and i am happy to celebrate. >> you're not selling any shares today. how did you make that decision? >> this is only a beginning. >> you have had a year's long relationship with jack ma. what is that like? >> he is my best friend, best partner. it is a lifetime partner. >> what do you want alibaba to do next? what else would you like alibaba to do?
>> alibaba continue to grow inside china but also grow globally. and this ipo in new york makes a good entry to the global expansion. >> jack ma told me today that he is open to a joint venture with amazon. what would you think of something like that? >> i do not know what he said. he always thinks proactively and anything can be possible. if it makes sense. >> how would you like them to expand in the u.s. and abroad? >> alibaba has a great platform, great technology and a global market. there are so many businesses, and they want to grow, so alibaba is a great platform for that.
>> how do you make sense of the acquisitions and the strategic deals they make in the sometimes unrelated industries like a soccer club or a football club, pharmaceutical, film. how does that make sense to you? >> in the long run, they all converge and they'll need to have the internet content, internet delivery. they all converge. >> what are you going to be doing? you were japan's first richest man. i believe you are the first richest man now. how do you plan to spend your earnings? >> we have lots of dreams. this is the beginning of our journey. >> you do a lot of philanthropic efforts. tell me about those. >> there are many people who need help. i especially feel -- there was a big earthquake and nuclear accident. i feel we have to contribute
something for that. >> how is the new ceo of sprint doing? >> oh, he is a fantastic guy. he is a fighter. he loves to be in a situation of underdog and fight back. he is like me. we start from nothing. he loves to fight for winning. >> why did it not work with t-mobile? >> we cannot make the decisions. somebody else makes the decisions. >> i asked what jack ma was going to do with his capital, would he buy something like yahoo!, but someone told me it is softbank who could buy a
>> you're watching "bloomberg west," where we focus on innovation, technology, and the future of business. i am emily chang. the apple hype machine was in full effect today with shoppers waiting in long lines to get their hands on the latest iphone. police officers in new york had to put up barricades as the line stretched more than 10 blocks. this store got a visit from tim cook where our cameras captured him posing for selfies with customers and employees. can the iphone live up to the hype? i got mine today. i went with an iphone 6, gold. i get to try out this week. i did not get much time today. i spoke with gene munster of
piper jaffray, alex gauna of jmp securities, and cory johnson. i asked them what phones they are going with. >> i am getting the 64 gig 6 plus. >> gene, you're not nervous about the big screen? being too big? >> no. i checked it out last week. it feels like the right thing for me. i am looking forward to the change. >> color? >> gray, actually. >> it makes a statement. alex, how about you? >> i do not know why gene is going to short himself on the memory. why not go 128? these phones are a steal right now. i am going with gray as well. >> cory, your turn. >> for the memory question, it is interesting. i never have enough memory. i am going with the 128. i am going with the 6 plus.
gene, i saw you at the announcement. we talked about it. we were surprised at how sleek a phone of that size could be. i've got big hands and the phone works for me. i think it is interesting how the offering of the 6 plus and of all of the memory helps raise asp's for the product. the average price of an iphone for apple could be quite high because of the offering at the very high end of it. alex, let me ask you, what do you make of the potential for that as the phone the drives the business? >> the indications are that that is the case. the larger phones have leadtimes out into october. the fact that so many of them are selling out bodes well for people to gravitate up in memory density. if they cannot be more affordable phone, why not get
the more loaded phone? we know that apple makes them attractive margins hearing all of this is good news for apple. >> i want to talk a little bit about demand. i know the line was 13 blocks long at the fifth avenue store. the reliance in san francisco and palo alto. gene, do you know what is more popular? what is it looking like? >> in terms of popularity, we do surveys. we been at six stores today. i have not seen the end result. it looks like the 6 plus is more popular. in terms of capacity, we will have a good read on how that is been trending compared to past years. cory is hitting the nail on the head in terms of profitability. this is a total wild card up it is difficult to find out. we will get a better read as the weekend progresses. >> i was just going to ask alex, in terms of the next few days,
what sort of flags are you going to be looking for in terms of how well the phone is doing? >> to the prior question about a supply-side perspective, we are already beginning to see the upside. jmp securities have been doing checks and a supply train chain. we do anticipate upside for a lot of component manufacturers in the december quarter. we like prospects for qualcomm. the iphone 6 plus began manufacturing later. it is really hard to read right now what is supply versus demand. both phones look like they're doing very well from a component perspective. >> gene, in terms of upgrade cycle, where were the carriers? what do we know about this pent up demand for phones that are off contract and consumers who are able to buy a new phone in ways that they weren't in previous upgrades? >> we look at the u.s. in
verizon and at&t. that is 75% of the united states. the bottom-line is that pool that is upgrade eligible is about 20% bigger this year than last year. that is a nice tailwind. iphone sales last year in the u.s. were relatively flat. they need that tailwind. that is a benefit that the iphone is going to have over the next couple quarters. >> gene, we know that apple is planning to unveil the new ipads in october. how concerned are you with cannibalization? especially the ipad mini if indeed the iphone 6 plus is the more popular. why do people need a mini ipad? will these 13-inch ipads be more popular? >> we think the 6 plus is going to cannibalize the low-end ipad. we should get a better mathematical readout on what that cannibalization looks like. it there's no real reason to get an ipad mini.
the larger screen, the 13 inch is a different segment. that is ok. cannibalization is good for apple because it is higher asp's on the 6 plus and growth margins. >> alex, what is the biggest question you might get an answer to after today? or when we see sales numbers from apple after the weekend. >> i think one important swing factor for apple is china right now. i think gene is absolutely right. prospects in north america are very good for the iphone. we are talking about the larger screens that can eat into that category of android phones where they have not played before, but china, when the phone goes on sale, i think we will see opening the floodgates. let's not forget that this week china mobile announced that they are increasing their base station installment. that is why jmp raised estimates.
>> i am emily chang and this is "bloomberg west." alibaba cofounder jack ma added $5 billion to his net worth today. he is one of the richest people in asia. he is not the only person celebrating newfound wealth. many of the company's workers are getting a big bump in wealth after selling their shares. how will this affect china's economy?
we welcome back cory johnson and we also have charles lee joining us from stanford university. he is an accounting professor. charles, i know for a fact that some employees sold early are kicking themselves right now. how many employees do hold shares and how much do they have? >> we know that it is over 5000, maybe as large as 6000. the total amount is about $8 billion. that is a lot of cash. >> is the structure different than the companies like facebook or google that we are more familiar with? >> most chinese companies are not done what alibaba has done. they took a page out of western companies' handbooks. that is where this group came from. >> what does it mean for these employees? many people in china are getting richer. there is a rising middle class. what actual impact does this have on the chinese economy? >> i think there will be a lot
of multi consumes in hangzhou, my hometown, outside of shanghai. outside of that, it will be very interesting to watch. i think a lot of the early people who divest earlier started startups already with the money that they got. i think a lot of the people once they finish will think about sports cars and other luxury items and some of this will likely go back into startups. >> we also saw 4000 current employees in 1000 former employees selling into the offering. we do not know what their shares were. we know that alibaba try to restrict those as well. what does that tell you?
>> this is very interesting. it is unusual to have a lockup in a large chunk of shares being held. we don't know how many are selling. that tells you the strength of the demand for the shares of this stock. it can absorb this kind of selling and still go up 38% on the open. >> i look at stock sells. there are lots of reasons that people sell stock. there's only one reason people buy stock. i don't know what that means for a chinese ipo. how different is it and what might it mean given where these people come from and what their relative family wealth is and the kind of bump this might mean for their actual personal wealth or standard of living? >> this is unprecedented. this is remarkable.
this is like a mini stimulus package. $8 billion goes a long way, even in my neighborhood. >> even in mine neighborhood. [laughter] >> we are talking about a widely held amount of money. it will be very interesting. i think it has never been seen before in china. >> i know you are familiar with hangzhou, where alibaba is based. what does it mean to have so much wealth in one concentrated location? will that change the area? >> it is not a poor part of china. it is already pretty well off. this is a shock in terms of stimulus to the local economy i am sure. this is a very happy place today. >> what does it mean for startups?
you said you hope the money goes into other companies in the same way that people in silicon valley might want to invest in other businesses. is that same spirit in the chinese people? do they want to invest in up and comers? >> yeah. i think that would be the ideal outcome for china for a lot of these people who find themselves with such liquidity shock. the area is already known as one of the most enterprising areas in china. this is a great thing. i think they have the talent and they see that it can be done and now they have some capital. i think these are good things in terms of putting capital to where the talent is. >> stanford graduate school of business professor charles lee, thank you so much for your commentary throughout the day. cory johnson, i will be back with you after this break.
>> welcome back. i'm emily chang. we want to follow up with a story we have been following here on "bloomberg west." on august 12, we spoke with john mcafee about his life after fleeing belize where he is wanted for questioning in the murder of another american businessman, gregory faull. during the interview, mr. mcafee made accusations about the prime minister of belize. he said he intends to post videos and evidence that he claimed showed the government trying to kill him on a website he started. at this point, none of the
evidence he claims to have had has been posted on the site for stop is not for us what to our request to provide the evidence. lawyers sent us a letter denying his claims. bloomberg has not been able to independently verify his accusations. we do not agree with or endorse his claims. a titanic change in one of silicon valley's most legendary software companies. larry ellison is stepping down as the ceo of oracle. he cofounded the company 37 years ago and has been the only ceo in oracle history. he hands the reins over to safra catz and mark hurd. can these two share the role? i want to bring back our editor at large cory johnson and bloomberg contributor and editor paul kedrosky from san diego. now that we have had 24 hours to digest this news, paul, what is your take on how well safra catz
and mark hurd can work together? >> i think they can work together fairly well. my problem is i don't think larry is going anywhere. he is working for the people who work for him as chairman. he is going to be the cto underneath two people who work for him as chairman. if we know anything about larry ellison, that means he is still in charge. he has never liked dealing with investors. he finds it a nuisance and he has never liked dealing with customers. he gets to focus on a product by handing out those duties, he gets to walk away from two things he doesn't like doing and still remain in charge. >> the salesforce ceo is also a former oracle employee. these companies are now rivals. he tweeted that there will always be one and only ceo of oracle. and that is larry ellison. cory, he may have intended to
give a compliment. do you think that safra catz and mark hurd will have any autonomy? >> that is a dig at them. marc benioff is the rising star. mark hurd picks up the phone and can call any ceo in america and convince them to buy some software and some software wrapped in hardware. and safra catz is a really amazing story. 15 a years ago she was another banker. now she is the most powerful woman in the history of american business. but in the world community, she is now in this dominant role. it is an amazing story. she is the one that while mark is focused on certain things, particularly sales in the country, safra is in charge of legal.
she is the person who has carried larry's flag into every discussion. in an interesting way, she is the oracle voice in that company. she is the one that make sure things are run and looks of expenses on how things are functionally going to help that company and guides that company in a strong way. since she is six years younger then mark hurd, we might look a what that means for her over the long term at oracle. >> paul, how would you assess over the next several months and years, how will you assess this arrangement? >> it is going to be a tough one. what you have to look for on the bottom line, we went to see a re-energization of the company. it has not flat lined but kind of flatlined. it is just another member of the silicon valley rust belt. up there with hp and cisco,
these companies that have really kind of lost the plot. i would like to look to see if they got the plot back. you heard some of that in the quarterly call yesterday. there needs to be a lot more jumping up and down and less talking about major wins from their traditional database products. you begin to see a kind of change in the company in terms of its temperament. i think you're beginning to see a turn, but i am skeptical that this rust belt tactic is going to turn around. >> rust belt tech. is it possible this cloud computing world, throw in salesforce, vevo, and anything you want, this is a lower revenue business and it's never going to be as big as the old world of software that oracle was the king of? >> i think that is exactly right.
that is why it represents a threat to what oracle does. the business model is predicated on a higher margin of sales. it will always look like a toy to them. it is the hallmark of technology. i hate to say that, that is part of the box that oracle finds itself in. they are transitioning to a marketplace that can never be as big as the one it is in. but new companies cannot see rationale forever adopting a more traditional, large-scale, mega database platform. >> it is time for the bwest byte, where we focus on one number that tells a whole lot. as we learned over the last hour, so much has happened in the last week between oracle and alibaba. cory, what do you got? >> there is so much more yet to happen. there are 32 technology ipo's currently pending in the u.s. that is twice as many as a year ago at this time. indeed 157% more, to be exact,
so like alibaba, they are looking to strike while this iron is hot. alibaba showed the market can choke down a lot of tech stock today. >> you mean there are more ipo's we have to cover? what? >> at the new york stock exchange, they need you! >> anything in particular, paul? >> i still think there is so much in numbers terms. that $68 number spoke so much in terms of the underpricing of the alibaba ipo as well as the cultural issue. this fixation on a number has superstitious power, it tells you what about what alibaba wanted to do and why. >> did they leave money on the table? >> they definitely left money on the table. that is much to yahoo!'s dismay. >> paul kedrosky, cory johnson, thank you. thank you so much for watching. have a wonderful weekend. ♪